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Reverse Mortgages: An Assessment

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The article ''Elderly Are Offered Reverse Mortages'' [ Jan. 29 ] is misleading. The mortgages described are home-equity loans that place a second or possibly first mortgage on a house based on the house's value without regard to income and must be repaid in full with interest at the end of 10 years. This could prove a disaster and ripoff for many elderly.

The reverse mortgage, as the phrase is generally understood, is a much better deal, and is unfortunately not yet legal in New York State although, hopefully, it will be in the future. It is legal in many other states. In the reverse-mortgage arrangement, the bank pays out the loan, usually in installments each month, and the individual can live in the house as long as he/she is able or wishes to do so.

At the end of that time, when the house is sold, the bank recoups the money it has advanced with substantial interest. The arrangement can continue as long as the owner wishes or is able to reside in the house, so the bank actually takes a risk that the payout might exceed the value of the house in the end, although hopefully both bank and owner will profit by the arrangement.

This is a far cry from a 10-year loan that can lead to foreclosure at the end of that time or a forced sale at a disadvantageous price and the need to make new living arrangements when the person is physically and mentally less able - not to mention financially less able - to make satisfactory choices and arrangements.

The risk for the bank in this area with 75 percent of the house's value now, capped at a maximum of $125,000, seems negligible.

I hope that the services of the Office of the Aging will lead to discouraging most elderly from this type of loan. The only persons I can see as benefiting from it would be those who could use the money or some of it to make modifications in the house to provide for an income-producing arrangement, such as creating an accessory apartment. Hopefully, more Westchester communities will make these legal as one way of coping with the need for more affordable housing.

I am the resource consultant at a large psychiatric hospital and specialize in helping disabled and elderly people to qualify for benefits and in advising them about financial planning. ELISABETH T. HARRIS Port Chester

A version of this letter appears in print on February 19, 1989, on Page WC12 of the National edition with the headline: Reverse Mortgages: An Assessment. Order Reprints|Today's Paper|Subscribe